The need for Shariah harmonization in financial reporting standardization

Abstract

Purpose – This study aims to analyze IFIs’ stakeholders’ perception on Shariah harmonization for financial reporting standards inIndonesia as a part of the development effort of linking the emerging global Islamic banking to Indonesian financial and industrial markets. Design/methodology/approach – A sample of 160 respondents, who were stakeholders of Islamic banks, was taken from Jakarta, the capital city of Indonesia and its surrounding major districts to examine the stakeholders’ perception on Shariah harmonization effort toward the implementation of a uniformed financial reporting standard for Islamic financial institutions. Data for this study were collected using a structured questionnaire. Findings – Through this study, the authors found several measures to be taken to ensure Shariah harmonization efforts in Indonesia such as deep understanding on the fatawā brought into practices and strict monitoring on the Islamic banks in applying the financial reporting standards that imply practicing the fatawā, both de jure and de facto. However, the respondents differ in their opinion on the possibility of Shariah harmonization, both de jure and de facto. The role of various actors involved in the financial reporting standardization may impede Shariah harmonization to take place. Research limitations/implications – The study is only looking at one case study, which is Indonesia. Therefore, future studies should consider more countries and significant number of respondents. Different research instruments to measure the perception can also be an interesting research exploration. In addition, adopting deep Islamic political economy of accounting theory may support better analysis on the issue of financial reporting standardization for Islamic financial institutions. Originality/value – This paper has practical significance for financial reporting standard setters for Islamic banks and policy-makers to understand the key behavioral and demographical dimensions of their stakeholders and using these dimensions to effectively position important aspects in financial reporting standards setting.

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